UK - The British government says it is confident it will be cleared by a European Commission investigation into £2.65bn (€3.94bn) of state support given to Royal Mail - including a £850m loan to plug a gap in the state-owned postal operator's pension fund.

The investigation into loans made since 2001 follows a complaint brought by competitors in the recently liberalised postal market. The complainants, including Deutsche Post and TNT, claimed that £850m deposited into an escrow account to plug a £6.6bn pension fund deficit represented an anti-competitive state subsidy.

It is among four loans the Commission will investigate to determine whether they meet market investor conditions. The others cover £500m in funding for overseas acquisitions, a non-earmarked £1bn loan made in 2003, and a £300m loan announced earlier this month.

"It is important to reassure competitors that the advantages of [market liberalisation] are not neutralised by illegal state subsidies," competition commissioner, Neelie Kroes said in a press statement. "We will look at each of the UK's measures carefully to see whether what they have done represents state aid and whether they have a lawful or unlawful purpose."

A Department for Trade & Industry (DTI) spokesman said the UK government was "confident that all finance was provided on commercial terms."

The spokesman said the government would cooperate with the investigation but declined to be drawn on its likely outcome.

"We don't think we'll lose so there's no point speculating on what would happen if we do," he said.

If the Commission rules against the government, it will have to recoup the loans from Royal Mail as well as the interest it saved as a result of receiving them.